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Rural Industries Research & Development Corporation
JAPAN FOOD MARKET STUDY by the Australia–Japan Research Centre (AJRC), Asia Pacific School of Economics and Management (APSEM)
January 2003
RIRDC Publication No 02/164 RIRDC Project No ANU-50A
The Japanese food market is changing in ways that both threaten and offer opportunities to Australian interests, according to research presented in this report. The Australia-Japan Research Centre (AJRC) showcased the research in a workshop, involving Australian and Japanese industry representatives, government officials and academics, that concluded a research program on how Japan's food sector is responding to reforms in the wider economy.
Japan’s food market has been growing, with strong trends toward eating out and consuming Western-style and imported foods. These trends have brought discernible changes in the market shares of particular exporters to Japan, including Australia.
As the competitiveness of local producers has declined, Japan’s imports of processed foods have risen.
Australia’s share of Japan’s processed food imports has fallen, however. Some of the fall in Australia’s market share can be put down to decreased demand for some traditional food exports. Another reason is that the competitiveness of Australian food producers has been low.
Inquiries into the Australian food-processing industry suggest a large number of factors that could be behind the fall in market share, including uncompetitive labour and marketing arrangements as well as management issues. In addition, some of Australia’s competitors have been receiving preferential access to Japan’s food market, and multinationals operating in Japan have been sourcing imports from their affiliates overseas.
The Japanese economy is still in distress, and unemployment is historically high. Problems in the Japanese food market reflect problems in the rest of the economy – the sector has been made uncompetitive by protection, and investors have moved offshore, taking Japanese jobs with them.
Japanese agriculture has so far been quarantined from any direct adjustment to problems in the overall economy. It has become a symbol of whether Japan has the resolve to address its economic problems through restructuring rather than just resorting to ‘pump priming’. With the outcome of a comprehensive round of multilateral trade negotiations uncertain, unilateral measures will be required if countries are to reform troublesome sectors that are dragging down the overall economy. Japan’s high protection of agriculture has been threatening its relations with other countries, especially major economies such as China and the United States, with which Japan has advantageous trade and investment linkages.
How can Japan improve the competitiveness of its food market? If the agricultural sector were more open to competition, Japanese food processors would be able to source cheaper inputs and add value in areas where they have a comparative advantage, thus regaining share of the domestic food market as well as export share. Japan has a comparative advantage in a broad range of sectors, particularly those where technologies and related services are significant. A competitive approach to regaining market share has far more appeal than offering further assistance and protection, as this would raise the costs to Japanese consumers and Japanese food processors.
The distribution system is another major problem. Distribution is inefficient and complicated. Many processed-food enterprises are small and inefficient. Many retail firms in the sector are also small, and wholesaling is multi-layered. Policies that encourage this structure need to change if competitiveness is to improve.
Japan’s agricultural cooperatives have distorted the food market. The agricultural cooperatives are heavily supported by the agricultural ministry and agricultural interests, which aim to maintain traditional small-scale farming and therefore the political support of farmers. The activities of the cooperatives extend far beyond the provision of inputs for farming and the distribution of agricultural products, with heavy involvement in financial services and retailing. As a result of reforms in financial and other sectors, the profits of the cooperatives have been falling. This could increase the pressure for agricultural reform.
Australia’s share of the Japanese food market will continue to decline unless productivity and management in the processed-food sector improves. Australia needs to build on the successes it has had with some processed foods and raw commodities. Much value can still be added without processing, which may just add costs rather than value. Success has been achieved with processed products that are not protected in the Japanese market and where Australia has scale advantages.
Foreign direct investment (FDI) into and out of Japan creates linkages between domestic and foreign suppliers of food. Asian countries, particularly China, have been important destinations for Japanese FDI in food, and increasingly important sources of imports as wholesalers and retailers seek to lower costs by forming links with overseas producers. Exports to Japan from Japanese affiliates in Asia are larger than exports from affiliates in North America. FDI has complicated the political economy of the food sector, with Japanese companies investing in food sectors overseas and overseas companies investing in food in Japan.
Because foreign investment can increase trade between countries, Australia would do well to promote trade and investment links in the processed-food sector through encouraging joint ventures in both Australia and Japan.
Ray Trewin
Australia–Japan Research Centre
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